PCIT Vs Nandkishor Hulaschand Jalan (Supreme Court of India)
Summary: The proceedings concerned the Revenue’s challenge to the restriction of an addition relating to unverifiable sundry creditors from Rs.2,71,32,085/- to Rs.67,83,020/-, being 25% of the total addition. The Assessing Officer had confronted the assessee with various creditors having total outstanding balances of approximately Rs.2.71 crores.
Read HC Judment in this case: Gujarat HC Upholds 25% Addition on Unverifiable Creditors in Bogus Purchase Case
The assessee explained that a large number of debtors had not made payments, resulting in insufficient funds to pay the creditors, but thereafter supplied no further information. The Assessing Officer consequently disbelieved the transactions and added the entire amount, observing that the assessee might have purchased goods in cash using unaccounted money and procured bogus bills to cover purchases corresponding to sales, thereby creating unproven credits in the balance sheet.
In appeal, the Commissioner of Income Tax (Appeals) restricted the addition to the profit element of 25%, and the Tribunal rejected the appeals of both sides. The Gujarat High Court, while considering the Revenue’s appeal, held that the Commissioner (Appeals) and Tribunal had correctly limited the addition to 25%, following Vijay Proteins Ltd. vs. C.I.T., reported in 58 ITD 432.
The Revenue relied upon N.K. Industries Ltd. vs. Dy. C.I.T., reported in (2016) 72 Taxmann.com 289, contending that the entire amount was liable to be added. The High Court distinguished that decision on the ground that there the entire purchases were found to be bogus, which would have the effect of increasing the assessee’s profit by the corresponding amount, and dismissed the Tax Appeal. Before the Supreme Court, the learned Additional Solicitor General argued that the apparently contradictory opinions in Vijay Proteins and N.K. Industries required resolution.
The Supreme Court condoned the delay and issued notice, returnable in four weeks. The supplied Supreme Court text then reproduces the High Court’s reasoning and concludes with the dismissal of the Tax Appeal. Thus, on the supplied record, the challenge did not result in any alteration of the High Court’s ruling; the restriction of the addition to 25% remained undisturbed.
Background and High Court Proceedings
The Assessing Officer confronted the assessee with various creditors, total outstanding of which was Rs.2.71 crores (rounded off). The assessee presented that there were large number of debtors who did not make payment due to which, he could not gather sufficient funds to pay to the debtors. However, the assessee thereafter supplied no further information and the Assessing Officer therefore disbelieved all such transactions.
The Assessing Officer accordingly made an addition of the entire amount of Rs.2,71,32,085/-. He proceeded on the basis that the assessee might have purchased goods in cash using unaccounted money and, with a view to cover up purchases corresponding to sales, procured bogus bills, thereby creating unproven credits in the balance sheet.
In appeal, the Commissioner of Income Tax (Appeals) restricted the addition to the profit element of 25%. Both sides went in appeal before the Tribunal on this issue, but the Tribunal rejected both appeals.
Gujarat High Court’s Reasoning and Ruling
The Revenue challenged the Tribunal’s judgment dated 20.04.2017. The question raised concerned whether the Tribunal was justified in upholding the restriction of the disallowance of unverifiable sundry creditors of Rs.2,71,32,085/- to Rs.67,83,020/-, being 25% of the total addition on account of bogus creditors.
The Gujarat High Court held that the Commissioner of Income Tax (Appeals) and the Tribunal had correctly limited the addition to 25%, following the judgment in case of Vijay Proteins Ltd vs Commissioner Of Income Tax, reported in 58 ITD 432.
The Revenue relied upon N.K. Industries Ltd. v. Dy. C.I.T., reported in (2016) 72 Taxmann.com 289, where the entire amount had been confirmed. The High Court distinguished that case because the entire purchases there were found to be bogus, which would have the effect of increasing the profit of the assessee by the corresponding figure.
The Tax Appeal was consequently dismissed.
Supreme Court Challenge
The Revenue thereafter approached the Supreme Court. The learned Additional Solicitor of India argued that two contradictory opinions of the High Court on the issue, one in the case of Vijay Proteins Ltd. vs. C.I.T., 58 ITD 432 and another in the case of N.K. Industries Ltd. vs. Dy. C.I.T., (2016) 72 Taxmann.com 289, needed to be resolved.
The Supreme Court condoned the delay and issued notice, returnable in four weeks.
Supreme Court Ruling and Effect on High Court Judgment
The supplied Supreme Court text reproduces the factual findings and reasoning concerning the addition, the restriction to 25% by the Commissioner of Income Tax (Appeals), the Tribunal’s rejection of both appeals, and the Gujarat High Court’s distinction between Vijay Proteins and N.K. Industries.
The supplied text concludes: “Tax Appeal is dismissed.” On the supplied record, the Supreme Court challenge therefore did not result in any alteration of the High Court’s ruling. The restriction of the addition to 25% remained undisturbed.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
It is argued by learned Additional Solicitor of India that two contradictory opinions of the High Court on the issue, one in the case of Vijay Proteins Ltd. vs. C.I.T., 58 ITD 432 and another in the case of N.K. Industries Ltd. vs. Dy. C.I.T., (2016) 72 Taxmann.com 289, needs to be resolved.
Issue notice, returnable in four weeks.
